Central Bank Governor is concerned about falling house prices

During a meeting of the Oireachtas Finance Committee, the regulator informed attendees of a significant risk that home valuations will show a backward movement within the next two or three years. Philip Lane, the Governor of the Central Bank predicted a fall in house prices between 2018 and 2019. He has warned potential house buyers of this scenario and stressed the need to be aware of an overheating in the economy which could affect Leo Varadkar’s plans for a further reduction in income taxes.

Mr Lane has suggested that a number of global issues, including an increase in the supply of housing will put pressure on this price reduction.

Senator Kieran O’Donnell raised the point that recent increases in prices of starter homes have put them beyond the reach of many ordinary people. Mr Lane acknowledged this “affordability crisis” but reiterated that the only solution was to increase the supply of affordable housing.

Earlier in the meeting Mr Lane drew attention to the projection that 23,500 new units will be completed in 2018 and a further 28.500 in 2019.but that this fell short of the predicted demand outlined in Project Ireland 2040 of between 30 and 35 thousand per year.

The Governor informed the Oireachtas Finance Committee of some disquiet on his part about the expectations in some sectors that house prices should continue to rise without check. He drew attention to his belief that there could be a downward trend in house costs as supply improves. Currently the mortgage rules were working in order to prevent people from taking out excessive debt. At present only those with financial security were in a position to buy a house and that deposit and income guidelines for taking out mortgages were having the effect of slowing down the housing market.

The possible decline in house prices within the next few years is a significant risk and Mr Lane dwelt on the fact that buyers who take out a mortgage now and may wish to move before long, may risk losing financially. Conversely those planning to stay in their newly purchased house for a significant amount of time should not be unduly concerned. He felt that the housing market is much more resilient in present times and that over time there would be a natural increase in prices.

Mr Lane also drew attention to outside factors which could influence the property market over the coming years, such as Brexit international trade issues. It is possible that they could also reverse the current positive direction. He was cautious to emphasize that there were no definite signs, only that there was a material risk and that people should be informed of this before deciding to purchase.

He felt that current European Central Bank policy is such that interest rates are unlikely to show significant movements within the short term, but based upon a five to eight year projection there is a risk that there could be some movement in mortgage rates in the future.